Taiwan's president has called off a live-fire military exercise next week, hoping to ease tensions with China.

President Chen Shui-bian's decision came after China reportedly halted its military drills on the Taiwan Strait.

Mr. Chen says the cancellation of the annual Han Kuang live-fire exercises next week - part of a series of annual war games - is a goodwill gesture to the mainland.

Speaking on a plane on his way to Panama, President Chen says Taiwan looks forward to creating a win-win situation for both sides.

Tensions between Taiwan and China have simmered since Mr. Chen's re-election in May. Beijing fears he and his Democratic Progressive party would move toward declaring the island independent.

Groups within the DPP advocate independence but Mr. Chen has distanced himself from that position.

China considers Taiwan part of its territory and has not ruled out the use of force to achieve re-unification. In recent weeks, Chinese officials warned that relations were on the "brink of danger".

News reports say China canceled its own military exercises in coastal areas along the Taiwan Strait. No reason was given for that decision.

Arthur Ding, an international relations researcher at the National Chengchi University in Taipei, says the political stalemate between Taiwan and China is not as close to a full-blown conflict as portrayed by Beijing.

"China can manipulate all these military exercises to create some kind of psychological paranoia in Taiwanese people's minds," he said.

Also on Tuesday, news reports in China quoted former Chinese President Jiang Zemin, who heads China's Military Commission, as saying improvements in its arsenal are an "urgent task" for peace and stability.